How to Determine Tentative Tax Base

The IRS charges estate taxes on the transfer of property at death.

The Internal Revenue Service taxes the transfer of property at death with the estate tax. This tax is meant to be charged to wealthy taxpayers who transfer over $5 million worth of assets at death. A number of deductions are applied against a deceased's estate to reduce the value of estate taxes. The tentative tax base is the remaining estate after all deductions have been taken. Multiply the tentative tax base by the 2011 estate tax rate of 35 percent to calculate estate taxes due.

Instructions

1. Add up the value of all assets owned by the decedent prior to death. You must use the fair market value of all assets on the date of death. This calculates the decedent's gross estate.

2. Subtract any of the decedent's funeral expenses, estate administration expenses, unpaid debts and unpaid taxes from the gross estate. This calculates the adjusted gross estate.

3. Subtract the value of all assets transferred to the decedent's spouse and to charities. There is an unlimited estate tax deduction for spousal and charitable transfers. This calculates the taxable estate.

4. Add the value of all taxable gifts made by the decedent while alive to the taxable estate. Taxable gifts are the value of all gifts made over the lifetime gifting limit of $5 million. This calculation provides the tax base.

5. Subtract the $5 million estate exemption from the tax base. This calculates the tentative tax base.

Tips & Warnings

• For estates worth $5 million or more, you must submit your estate tax return and any owed gift taxes to the IRS before distributing the inheritance.

References

• IRS.gov: Estate Tax
• IRS.gov: Frequently Asked Questions on Estate Taxes
• IRS.gov: Gift Tax